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Foxconn buys land near Sao Paulo Brazil, plans new factory

updated 03:43 am EST, Tue November 20, 2012

by MacNN Staff

Will spend over $500 million for new electronics factory

Hon Hai subsidiary Foxconn CMMSG Industria de Electronicos has bought 350 acres of land near Sao Paulo, Brazil with the intention of building a new factory to assemble smart phones, tablets and other electronics. The deal will create a fifth Foxconn factory in Latin America, and at least the second such facility in Brazil. Foxconn has paid $12.6 million for the land, and will spend more than $490 million building the new facility. The current factory in Brazil is said to be one of the primary assembly plants for the iPad mini. The future facility could be used for expanded production in the Americas.

In addition to creating products for Apple and other electronics manufacturers without the shipping costs incurred from China-based production, the Fox con facilities take advantage of tax breaks and incentives offered by the Brazilian government, avoid tariffs of imported goods, and create products that can be sold in the rapidly-expanding Brazilian market. For example, an iPad mini made in Brazil avoids a 40 percent price hike caused by tariffs.

Foxconn makes goods for a wide variety of electronic manufactures, though Apple is one of its most important customers. The new factory in Brazil is likely to attract a number of clients that can use the facility to produce goods sold in the Latin American region. Apple has placed a lot of emphasis on the Brazilian market in recent quarters, with CEO Tim Cook mentioning the country and its expanding middle-class as a strong market and growth opportunity.

The iPad maker opened its iTunes Store in the country at the end of last year, and brought the iBookstore to Brazil just last month. It may not be coincidental that Apple is planning its first official retail stores in Brazil for later this year.

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Brazil, Brazil, Brazil - impressive. This shows how a strong government policy of supporting domestic manufacturing by shielding the domestic market from unfair trade practices can be successful. Brazil has said no to the downward spiral of wages caused by private industry chasing low-cost labor then selling those products the domestic market. Brazil's management of its economy is a real success story - albeit with a long way to go before the vast population is completely shown the full opportunity of a modern society. But incredible progress has been made in a short time. Brazil's government has truly raised the standard of living for its people - quickly.

This is exactly the opposite of what we see in the developed economies of the world. And we wonder why there's economic malaise? The phenomenon of lower and lower wages is a death spiral for any economy. The only way the US (and the rest of the developed economies) can get out of its fiscal and economic mess is to radically change its trade policies - with a system of reciprocal trade agreements or something of that ilk. The US has a problem generating wealth - not with spending too much. I repeat - spending is not the problem, lack of wealth generation is the problem, and the manufacturing sector is the sole source of wealth. American business leadership has decimated the manufacturing sector in the developed world. The blame lies squarely with two groups: 1) private industry that perpetuates the race to the bottom by chasing low cost labor and 2) the US government that has neglected to protect the standard of living of its people, primarily due to the system of legalized bribery called campaign finance. China does not trade fairly. For example, the Chinese government demands that before any goods are imported into China the factory be inspected for "quality" by representatives of the Communist Party. And the there's a fee - a big fee. So anyone who wants to sell in the Chinese market has to pay for the privilege of state-sponsored industrial espionage. Furthermore if a non-Chinese company wishes to manufacture in China the Chinese government demands that the non-Chinese entity own no more than 50% of the enterprise. That means huge amounts of intellectual property and manufacturing knowledge are handed over to the Communist Party of China.

But as long as upstanding members of our business community skim even more off the top for their own Swiss bank accounts, that's apparently just fine. Why should these upstanding members of the business community care about anyone else? Isn't unbridled greed the highest virtue? [sarcasm]

As a Brazilian national I must wholeheartedly agree with Jeff75's great comment. Indeed, Brazil's most recent industrial policies are based on two basic pillars: duly-contracted knowledge transfer (no, not stealing) and reduction of local taxes and granting of incentives for those willing to invest in the country. This means that we're talking here about long-term, sustainable capital investment and NOT vulture speculation. Besides, Brazil's relatively comprehensive and very expensive labor laws mean that the country will never be just another Chinese sweatshop.

Brazil is, has always been and will continue to be a part of the Western world - notwithstanding the various difficulties associated with a gigantic emerging economy, it's more than clear that the country is living a wonderful moment that goes against the negative economic news from places like the US and Europe. Taxes are still sky-high for imported consumer goods like Apple devices - but local production will definitely move prices to a lower threshold over time, along with better access to support services and localization efforts (not to mention Apple's first official Retail Store, due to open in Rio sometime next year).

Is the country seen as protectionist? Perhaps. But this is how the now-essential semiconductor industries of Korea, or even Brazil's Embraer were born in the first place - with a government-driven push for infant industries. Mr Eike Batista's "SIX" national semiconductor project is just another step in that direction.

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